How to trade gold for fun and profit

Latest News on USD/Gold.

The dollar continued to move down throughout last week. As a result, I’m up about a tenth of an ounce in my gold-denominated FXChoice account. I’m also continuing to accumulate physical gold from GoldMoney, as I don’t think there’s risk of the dollar rising much further than it is now.

However, I’ve taken profits on the long XAU/USD position I had entered into a week or two ago. I think it’s going to pull back in another day or two, and I want to get back in on the trade from a lower entry point. More on that later.

Before I go into the charts, here’s a few pieces of news about the gold market that have occurred over the past week:

Someone reported today that The SPDR Gold Trust (GLD) has been selling gold ever since the start of the new year. I think it was SilverDoctors who made this report. But I can’t find the page now, so I’m not sure (update 1-21-17: the report is from Zeal Speculation And Investment, and can be found here). If the report true, it is a surprise because usually GLD buys and sells with (not against) the overall trend in gold prices. This implies that some other big institution is buying enough gold to overcome GLD selling. My guess is that it’s probably European or British gold-backed ETFs, whose shareholders are buying because of Brexit fears. But who knows?

Monetary Metals has reported that as the gold-price of the dollar has fallen over these past two weeks, gold has become more scarce within the bullion banks and exchanges. This is again the opposite of what one would usually expect. So it implies that demand for gold is growing so quickly that it is outpacing the price. This is a very bullish development.

Taylor Dart at SeekingAlpha has reported that gold sentiment dropped drastically when it failed to break through the $1200/ounce psychological area of resistance (what we would call the dollar failing to fall through the 0.83 mAU area of support). This is a very rare occurrence. So it’s hard to determine what it means. But Dart seems to think it means there will be a pullback followed by a huge fall in the dollar (rise in gold).

With that news out of the way, here is the chart for USD priced in gold.

RSI is below 50 and MACD is still falling. The 10-day EMA is still below the 21. There’s no evidence that this crash is coming to an end right now.

However, a look at the candlesticks does show that the dollar has fallen for six consecutive days. Unfortunately, stockcharts.com doesn’t have the data for today yet. So I can’t show it to you. But it’s there.

I looked back at the data for the past several years to try and determine what the longest losing streak for the dollar was. And what I found is that seven days is the longest it has fallen before rebounding. So we can expect a pullback either tomorrow or the next day. After that, it will probably continue down again. That’s why I’ve exited the FXChoice trade to look for a better entry point.

One other point to keep in mind is that the dollar is getting close to its 100 and 200-day EMAs. There’s a strong chance of a short-term reversal when it gets there, so watch out.

Stocks are also continuing to fall:

It’s a long way down.

Bonds are still ranging over the long-term while moving towards the bottom of the range over the short-term.

With gold miners, I said last week that I expected them to be overbought by today. However, they pulled back instead and are now a bargain.

They’re right on the 10-day EMA. This would be a perfect opportunity if it weren’t for the fact that today’s candle closed less than halfway up the bottom of yesterday’s. That looks a little weak to me. So if I was going to take this trade, I would wait to see if tomorrow’s close is above today’s.

Unfortunately, I left no cash on the sidelines when I started buying gold last week. So I won’t be able to buy miners unless they are still a good trade when I get some more cash on Thursday. But if I had more cash on the sidelines, this is definitely something I’d be watching.

Speaking of miners, I have developed a new method for valuing gold mining stocks. I will talk more about this later on in the week…and will also provide an excel file that will help to calculate valuations.